Editor’s note: This is a guest post by Amanda Lorenzani, founder of ALPR, organizer of TechCrunch Italy and co-founder of Fox & Rose.
After Prime Minister Matteo Renzi recently concluded a whirlwind tour through Silicon Valley, Italy seems to be hopeful of renewed support in helping to grow its tech economy.
During Renzi’s trip to the Bay Area, he spoke to 150 Italian entrepreneurs, met the leaders of Twitter, Google and Yahoo and did more than raise a few eyebrows in California.
According to Corriere della Sera, Renzi was actually the first Italian Prime Minister to visit California since 1982 – an interesting fact considering Silicon Valley now has around 5,000 Italian tech entrepreneurs living and working in the area.
So, where are the Italian startups?
In the wake of Renzi’s historical and visit and tech.eu’s post on European tech companies, I couldn’t help but wonder for the umpteenth time: Where are the Italian tech startups? Why aren’t they getting more ink? Are there just not that many Italian companies out there?
A recent report by the Startup Europe Partnership, which has been mapping Italian “scaleups”, found that over 100 ICT startups in Italy broke the early-stage level barriers in the last three years and were supposedly poised to become large global companies. Approximately 68% of the identified companies raised between $500,000 and $2.5 million while 17% received between $2.5 million and $5 million.
In terms of IPOs, semantic technology company Expert System raised over $27 million to go public on the Italian stock exchange AIM Italia. The listing was reportedly the largest debut on AIM Italia with a €39.5 million valuation on trading day. Additionally, Triboo Media, a specialist in online advertising strategy and digital publishing, debuted on AIM Italia in March, raising €24 million with a market value of approximately €64 million on the day of the IPO.
MailUp, an email marketing software provider in Italy for over 10 years with offices in Milan, Cremona and San Francisco, also debuted its IPO in July raising €3 million.
As for M&As, they are low, but growing. SEP Monitor shows that more than 50% of the Italian ICT acquisition deals have been by Europe-based buyers.
Putting it into context
One thing is certain – whenever the subject of Italy’s tech sector arises there is no shortage of opinions from both inside and outside of the country.
In the midst of a triple dip recession with nearly 43% unemployment rate among those under 25, a shaky political structure and lower-than-average broadband take-up, it’s easy to dismiss the country as a digital hotspot in Europe.
However, despite these hostile conditions, a growing tech ecosystem is starting to emerge – and with it, a new generation of entrepreneurs who are set to kick off the next wave of innovation in the country.
According to the International Monetary Fund, Italy, in 2014, is the eighth largest economy in the world and the fourth largest in Europe. Italy produces in spite of its problems – and it didn’t get there by chance. Entrepreneurship is embedded deeply into the culture and, historically, plays a huge role in the country’s GDP.
With an aging population of just over 60 million scattered around densely populated cities that lie in the shadows of its magnificent Alps and Apennine mountain ranges, one could be forgiven for wondering how such a country could kickstart a digital ecosystem.
A new digital wave
And yet, in this difficult economic climate, where job security is scarce, many people are seeing starting their own business as an attractive option.
The Italian Ministry of Economic Development recently revealed that over 2,500 startups across the country have been registered on their database in the past 18 months. Of course, the number of startups alone is not indicative of a great ecosystem. If anything, it might signify a lot of very unemployed people. However, among these many startups there are some diamonds in the rough and many accelerators and incubators are separating the wheat from the chaff.
Italy’s growing number of accelerators focused on the digital economy – including H-Farm, The Net Value, Nanabianca, Digital Magics and Enlabs – are also helping to provide more favourable conditions for early-stage startups to mature to the next level.
So, what are some factors contributing to this new wave and is there anything that can further drive this sector to maturity? Perhaps, then, we can finally see more Italian-led companies on European tech company roundups.
First of all, Italy has been working hard to develop a more hospitable environment for entrepreneurs and the ecosystem is increasingly becoming more structured. In terms of financing, this means a new generation of tech-focused venture capital firms, including United Ventures and P101.
“Indicators such as the arrival of Google Ventures and Y Combinator in Europe are extremely positive for any tech ecosystem on the continent as it signals a renewed interest in European startups from Silicon Valley,” said Massimiliano Magrini, founder and managing partner of United Ventures.
In the past, lack of support during the embryonic stage of the ecosystem limited growth potential of local startups. The average level of VC investment related to GDP per capita was 1/6th of the European average and even less in comparison with France and Germany. Even more restraining was institution-related issues, especially the legislation and bureaucracy with regards to company formation, management and exit/failure.
On the other hand, the number of multi-sector funds that are investing into tech is notably growing.
These include 360 Capital Partners, Innogest, Principia SGR, Vertis Sgr, TT Venture and Atlante Ventures as well as angel investor networks such as Italian Angels for Growth. Following suit, are also pre-seed programs such as SeedLab, TechPeaks, Working Capital and Make a Cube as well as equity crowdfunding platforms such as SiamoSoci.
But these are all signals of a much deeper trend that highlights a significant cultural shift towards embracing digital entrepreneurship.
The talent dilemma
The skill pool in Italy is something that cannot be ignored. With a number of notable technical training institutions such as the Politecnico Sant Anna and the Politecnico of Torino, the number of skilled engineers is growing fast. The cost of development in Italy is also much lower than in most other places in Europe.
One of the issues facing Italy at the moment is that a large number of entrepreneurs, scientists and developers are leaving for more lucrative shores. It’s not surprising considering the prospects facing the domestic workforce compared with those, say, in London, New York or San Francisco.
However, a large portion of the fastest-growing ‘scaleups’ – such as Beintoo, Hyperfair and Timbuktu – are born in Italy and then grow up in the US. A gradually increasing number of startups, backed by domestic investors, are also scaling up in Italy – MusiXmatch is a prime example – and several bootstrapped companies in Italy are turning into ‘scaleups’ that generate revenue – such as 7Pixel.
The Italian ecosystem is also becoming more and more international with a number of companies expanding their their footprint globally. The mantra among many of the startups today is ‘start with an international view from day one’ – this was not the case five years ago when entrepreneurs were quite content on concentrating on the home market.
When it comes to going global, one oft-cited Italian company is Yoox, the fashion e-commerce site founded by Federico Marchetti that is now a major player on the international stage worth over £1.6 billion and dubbed the Amazon of the fashion world.
Of course, there are many others, but just to highlight a couple of interesting Italian-led companies expanding globally…
There’s MusiXmatch and Stereomood in the music space. The fashion tech sector is also booming with startups such as fashion e-commerce company NextStyler, in-store visual tracking startup Pathflow and customer interaction platform Vivocha. In the WiFi space, there is Cloud4Wi, the cloud WiFi solutions provider recently expanding to Silicon Valley after raising €5 million, and Decisyon, which raised $22 million recently.
And what of interventions at a political level? What is being done to facilitate change and why was Renzi focusing on Silicon Valley?
In 2012, the Ministry of Economic Development, under the Monti government, formed a task force to promote the creation and development of startups. This was then legislated into a set of reforms that simplified the setup of new companies and facilitated private investments.
Key elements included a tax relief of 19-27% on investments fuelling startups, public guarantees on bank loans covering 80% of the sum, fail-fast mechanisms, 35% tax credit for the hiring of highly-skilled personnel and flexible labour laws.
All notable initiatives from a government keen to tap into this emerging economy, but initiatives at top-level take time to trickle down and shape cultural behaviour. Two years later, it finally seems to be happening as the Renzi government is now busy appointing digital movers and shakers including Paolo Barberis and Riccardo Luna – both notable players in the Italian digital sphere – who will doubtless prove to be huge assets.
In addition, the Fondo Italiano di Investimento, a notable private equity fund linked to the government, has allocated part of its capital (€50 million) to VC funds providing an opportunity to start new funds.
Italy has without a doubt a huge and relatively untapped potential in the digital sector that could be leveraged through a stronger integration with the global players of innovative entrepreneurship.
With backing from the government – in particular the Ministry of Economic Development’s legislation for startups –to reduce the barriers of starting a business and support entrepreneurs as a key area of growth in the country, it looks like there’s light at the end of the tunnel for entrepreneurs wanting to start a company in Italy.
Undoubtedly, we still have a long way to go, but it’s certainly a market to watch and I am convinced that in the next two to three years there will be a notable presence on a global scale of Italian-run startups making waves in the international digital scene.
Featured image credit: lsantilli / Shutterstock